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Morning Dairy Comments, 02/11/2016

Thursday, February 11, 2016

· Yellen doesn’t expect to have to cut rates and mentioned that the Fed isn’t sure negative interest rates are legal

· Christie and Fiorina drop out of presidential race

· USD to 15 month low vs. Yen, gold to fresh 12 month high

· The Dow finished lower yet again, the 5th straight day of declines and was over 280 points lower overnight

· PepsiCo profit up 31% beating estimates

· Sweden cuts interest rate further into negative territory, to -0.5%

Class III, Cheese & Dry Whey

After nearly three weeks of a stalled out spot market, action in the blocks came roaring back yesterday as a brisk eight loads changed hands on a two cent hike to $1.49, which not only puts the spread closer to relative alignment with barrels, which remained unchanged at $1.4650, but also sets the stage for a challenge of the $1.50 mark. Futures took notice but remained a bit complacent, with contracts through 2016 tacking on about a nickel as the trade will likely want to see a push north of the $1.50 mark on spot before injecting additional premium. Bear in mind that the nearby March contract is already trading close to 20 cents over the spot equivalent and the trade is basically telling us that fatigue has set in. We would expect cash to attempt to muscle up through the $1.50 in the coming days, but if history is any indicator it probably won’t stay there for long.

For the week ending February 6th, the National Dairy Products Sales Report showed blocks holding steady at $1.50 on decreased sales volume of 11,695,965 million pounds while barrels slid to 1.51 9,478,002 million pounds. The dry whey price posted a gain to 0.2479 on decreased sales volume of 7,168,735 million pounds.

We look for Class III and cheese to open slightly higher, whey steady

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

8

$1.4900

UP 2

1

0

BARRELS

0

$1.4650

UNCH

0

0

NFDM

GRADE A

0

$0.7500

UP2

2

0

BUTTER

GRADE AA

1

$2.1250

DOWN 1

0

0

Class IV, Nonfat, and Butter Futures

Class IV futures sat back and watched divergence play out amongst the components, as butter pulled back while NFDM surged, both led by spot action. Butter, with the penny downdraft on the spot market, saw sellers came out and drive the futures into the red from May-Dec, while holding steady in the nearby contracts. At this juncture, it looks like the $2.10 level will become a target and if additional loads are brought to the exchange in the process, a flush out to $2.00 isn’t out of the question. Futures have broken initial levels of support and are open to further pressure at this point, however we’d be remiss not to suggest that hedge activity has been brisk over the past couple years and there’s no reason why a push lower wouldn’t result in some material buy side interest.

The NFDM market has been attempting to carve out some semblance of support as it trades in sideways fashion, consolidating the recent push lower with the spot price clinging to the mid $0.70’s. Tuesday’s action hinted at what transpired yesterday, as a lower spot call saw initial pressure on the futures where buy side interest stepped in for support and shored up the downdraft. That spilled over into yesterday’s action and follow through upside action, which brings many contracts back to technical levels of interest that have proven formidable in the past.

For the week ending February 6th, the National Dairy Products Sales Report showed a higher butter price of 2.17 on increased sales volume of 5,002,906 million pounds, while NFDM came in steady at 0.77, on sharply higher sales volume of 17,448,361 million pounds.

We look for the class IV markets to open steady to slightly higher today

Grains

Uncertainty is abound in the grain markets and we’re going nowhere quickly at the moment. Corn and soybeans finished slightly lower while wheat prices were a bit higher. Fundamentally the report on Tuesday was bearish but the drastic pullback being seen in equities seems to be offering some support as funds need somewhere to go. Crude oil continues to flounder however and that seems to be keeping any cash influx to commodities from making a more convincing bottom on the grain markets technically. We can’t see much of anything changing in this regard for a while as despite the release of early 2016/17 crop year S & D’s in the coming weeks it’s starting to feel as though we are going to need spring to arrive before seeing any significant price movements for the grains.

We expect grains to open steady to slightly higher across the board today.

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